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CEI Planet: September - October 2010

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CEI Planet: September - October 2010

Below are excerpts from the September-October 2010 issue of the CEI Planet, the official newsletter of the Competitive Enterprise Institute. Click here to view the full issue of the Planet as a PDF. This issue of the Planet contains praise of offshore drilling, an interview with economist Bartley J. Madden, a plea for sanity on BPA, and coverage of CEI's recent European outreach trip.

Democrats Support Yet Another Bailout

By F. Vincent Vernuccio and Ivan Osorio

The so-called Create Jobs and Save Benefits Act of 2010, introduced by Sen. Robert Casey (D-Pa.), got a huge boost when Senate Majority Whip Dick Durbin (D-Ill.) signed on a as a cosponsor, just before Congress’ August Recess. With the support of such a high-ranking member of the Senate Democratic leadership, Casey’s bill threatens to gain momentum. That would be very bad news. Casey’s bill is a micro-targeted bailout for underfunded union pensions that could cost taxpayers billions.

The bill would create a special fund in the Pension Benefit Guarantee Corporation (PBGC), an agency chartered by Congress that insures private sector pensions. The PBGC is funded through premiums paid by private companies to insure retirees if a plan sponsor were to become insolvent. Casey’s bill would direct taxpayer dollars to shore up some underfunded union pension plans. The use of public funds to insure private pension plans is a first for the PBGC and a stark departure from the way it has operated since its creation in 1974.

Casey’s bill would create a new fund to the PBGC called the “fifth” fund. The legislation states that the new fund’s obligations would be “obligations of the United States.” In other words, taxpayers, not just PBGC premium payers, would be on the hook. Money in the “fifth” fund would go to “orphans”—employees whose employers have stopped contributing to their plan—of certain existing pensions.

Phyllis Borzi, the Assistant Secretary of Labor for the agency in charge of pension plans, acknowledged in testimony to the Senate Health, Education, Labor and Pensions Committee that Casey’s legislation “ultimately makes the taxpayers liable for paying the benefits of [particular union pension] plan[s]. Currently, no other benefit obligations assumed by PBGC are subject to the full faith and credit of the U.S. government.”

Borzi, who was nominated by President Obama, is skeptical that the legislation will fix the current situation. She commented that the root of the problem is a sharp decline in the number of new employers joining union pension plans and a dramatic drop in the ratio of employees to retirees. She stated that, “[T]hese larger problems facing plan’s troubled industries won’t be solved by the kind of short term temporary funding relief Congress is currently working on.”

Indeed, union pension plans have been in trouble for years and the latest economic downturn has only exacerbated the problem. In 2008, the Department of Labor listed 230 union plans as being either endangered—less than 80 percent funded—or critical—less than 65 percent funded. A year later, that number had skyrocketed to 640. In 2009, Moody’s Investors Service estimated union pensions to be underfunded by $165 billion.

Worse, Casey’s bill would also bail out a dysfunctional agency. The PBGC’s premiums are set by Congress, not the market. As a result, years of too-low premiums, combined with the moral hazard that creates for companies under Chapter 11 to shunt off their pension obligations to the agency, have left the PBGC with severe deficits of its own. The PBGC faces a deficit of $22 billion, which is projected to go as high as $34 billion by 2019, according to its own 2010 annual management report. Taxpayers could also be on the hook for this deficit. A provision in the “fifth fund” allows it to transfer money to others funds in the PBGC, which could use that money to reduce its deficit.

Estimates on the bill’s cost vary widely. Sen. Casey very conservatively predicts the bill will cost $8 billion to $10 billion. News outlets such as the Wall Street Journal, Washington Examiner, and Fox Business estimate the bill could cost as much as $165 billion.

One likely early beneficiary of the bill would be the Teamsters union, for which “pension reform” is a top legislative priority. The Teamsters’ Central States Pension Fund has been terribly underfunded for years. In 2007—before the financial crisis—it had only 47 cents on every dollar owed. Today, it is likely much worse due to the economic downturn. In fact, that same year, UPS found it less costly to pay $6.1 billion to withdraw from the fund than to continue paying into it. According to the Department of Labor, 11 Teamsters pension plans are in critical status and eight are endangered.

Why the sudden urgency? The Wall Street Journal summed it up well: “If Democrats could shift orphan company pensions to the taxpayer, the liabilities for the remaining companies would fall dramatically, and the multi-employer scheme could continue. Unions and employers could keep promising current workers fabulous pay and benefits, without which they have little chance of stemming their continuing decline in membership.”

Taxpayer watchdog groups have been sounding the alarm on the Casey bill and a similar bill in the House of Representatives, introduced by Rep. Earl Pomeroy (D-N.D.) for months. In May, 50 free market and taxpayer organizations co-signed a letter urging congress to “oppose legislation which provides the framework for a taxpayer funded bailout for failing pension plans.” The Casey Bill has been slow to gain traction, but now, with the second highest ranking Democrat in the Senate backing it, that all could change.

F. Vincent Vernuccio is Labor Policy Counsel and Ivan Osoriois Editorial Director and Fellow in Labor Policy at CEI. A version of this article originally appeared in TownHall.com.

FROM THE PRESIDENT: Ralph Smeed: Libertarian Luminary

By Fred L. Smith, Jr.

Another hero of the post-World War II economic liberty movement has passed away. Those who never knew Ralph Smeed missed an opportunity. Ralph was a classic curmudgeon, but his was a righteous anger. He was irate at the direction of America and eager to keep us from hurtling down the Road to Serfdom. He aggressively publicized his views, earning local notoriety for his billboard in Caldwell, Idaho, where he posted pithy, if somewhat aggressive, political aphorisms.

I first met Ralph at a conference hosted by PERC many years ago. During one of the breaks, he and I were walking through the woods alongside the young daughter of one of the participants. “Young lady,” Ralph asked, “do you go to a government school?” “Yes,” she replied. “Well,” responded Ralph, “you take good notes and when you grow up you can file a class action lawsuit against the state!” If she took that lesson to heart, Ralph may have helped create a new fighter for freedom.

Statism was his bête noire. Ralph distributed a series of products with notable quotes and truths about that terrible concept—notepads, pamphlets, pens, and other novelties. The pens click through statements condemning statism, among them: Politicians wallow in statism. Lobbyists get rich thru statism. The world’s ‘oldest profession’ is more honest than statism. And, although Microsoft’s spell check still lists “statism” as an unknown word, the term has made its way into most dictionaries. We will try again to persuade Microsoft to add this definition—it would be a fitting tribute to a great man.

Ralph served on the board of the Foundation for Economic Education (FEE) and was memorialized by that group’s current president, Lawrence Reed. Ralph was convinced that free market advocates need to better market liberty. When he found that FEE founder Leonard Read’s classic pro-freedom pamphlet, I, Pencil, had gone out of print, he and David Keyston, another fighter for liberty, put up the funds to allow FEE to reprint that important document. We at CEI were working with Ralph to adapt I, Pencil into a short film.

Ralph is not with us to see that project through to its completion, but we’re collaborating with one of his colleagues, Wayne Hoffman, head of the Idaho Freedom Foundation, to make the I, Pencil video a reality. Bringing that classic work into the new media realm will help us portray the creativity of the market and spontaneous order created by voluntary exchange. Those interested in supporting this endeavor should contact CEI or the Idaho Freedom Foundation. We intend to dedicate this video to Ralph.

Larry Reed spoke to Ralph shortly before his death. Even in his hospital bed, he was still thinking of ways to advance liberty. Death took him as it does us all but he went fighting the good fight. His example is inspiring. Ralph began his struggles when the ideas of liberty were at a very low point in America. Today, the Tea Party and the swiftly expanding classical liberal movement prove that his efforts were not in vain. Ralph fought long enough for the rest of us to join the battle. Our task is to ensure that his triumphs do not falter in our lifetimes.

The Good, the Bad, & the Ugly

THE GOOD: House Takes Baby Steps on Internet Gambling Reform

In late July, the House Financial Services Committee passed the Internet Gambling Regulation, Consumer Protection, and Enforcement Act (H.R. 2267), originally introduced by Chairman Barney Frank (D-Mass.). The bill purported to liberalize online gambling in the U.S. CEI Director of Insurance Studies Michelle Minton said, “Four years after Congress passed the Unlawful Internet Gambling Enforcement Act—confusing and ineffective banking regulation—we’re glad that members of the House Financial Services Committee have recognized the need to bring Internet gambling out of the underground.” But the legislation is far from ideal. Numerous amendments added additional burdens on potential online gambling entrepreneurs, onerous enough that few will likely jump through the hoops required to obtain the necessary licenses. These reform acts are far from perfect, but baby steps in the right direction should still be welcomed.

THE BAD: EPA Refuses to Reconsider Harmful Energy Regulations

On July 30, the Environmental Protection Agency rejected petitions from CEI and other groups opposed to disastrous energy rationing policies to reconsider its move to regulate greenhouse gas emissions as a “public endangerment” under the Clean Air Act. CEI condemned this decision, especially the agency’s refusal to consider evidence of scientific misconduct unearthed during the Climategate scandal. “EPA’s denial of petitions for reconsideration was as predictable as EPA’s outsourcing of its scientific judgment to the Climategate schemers at the IPCC,” said CEI Senior Fellow Marlo Lewis. “This sort of bureaucratic self-dealing is inevitable when one and the same agency gets to determine the science and then regulate based on that determination.”

On September 16, the Senate passed the Small Business Jobs and Credit Act of 2010, and President Obama signed it into law on September 27. While the administration touted the measure as a much-needed assistance to small business, in reality it is yet another government boondoggle that will do little to help small businesses in today’s frigid business climate. “The bill’s ‘small business lending fund’ has the government buy $30 billion in preferred stock in banks in return for the banks making politically correct loans with an emphasis on ‘linguistically and culturally appropriate outreach,’” noted Director of CEI’s Center for Investors and Entrepreneurs John Berlau. “Such an approach will not benefit innovative small firms, but most likely firms who toe the government’s line on investing in renewable energy and anything else the government deems ‘appropriate.’”